Sizing Up Pennsylvania’s Potential Medical Mariijuana Market

Pennsylvania is tantalizingly close to legalizing medical marijuana via a proposal that would create one of the most compelling new cannabis markets in the nation.

Lawmakers are considering a bill that, as it stands now, would pave the way for ample business opportunities, a sizable patient base and annual sales that could quickly surpass $100 million.

The initial bill cleared the state Senate and moved to the House, which passed a version with substantial changes. The revised proposal now resides back in the Senate.

Gov. Tom Wolf has already said he intends to sign the legalization bill into law if it reaches his desk, and the chances are high that it will.

“Pennsylvania could be one of these huge robust states. There is a serious marketplace here,” said lobbyist Michael Bronstein, co-founder of the American Trade Association for Cannabis and Hemp in Philadelphia. “It may take a couple of years and there may be a lot of headaches between now and then, but a lot of the serious players are looking at Pennsylvania very hard.”

Big Opportunities

One of the main attractions of the proposed law is that it contains 17 approved medical conditions, including severe chronic or intractable pain, PTSD, inflammatory bowel disease, multiple sclerosis, and Parkinson’s disease.

“It’s a list that people from out of state will find appealing from a business aspect and being able to get a lot of patients, which is critical to being able to generate a serious marketplace,” Bronstein said.

Attorney Steve Auerbach, managing partner of Keystone Cannabis Law, predicts there will be 245,000 patients in the state. The patient count would likely be much lower, however, until the program fully ramps up, as has been the case in many states.

Still, if even a half of a percent of residents join the program, that would equate to nearly 65,000 patients – or $100 million to $150 million in annual sales, according to Marijuana Business Daily.

While some new medical cannabis states have strictly limited business licenses (Minnesota granted just two, while New York awarded just five), Pennsylvania would offer numerous opportunities if the bill stands as written now.

Under the latest version of the measure, the state would initially allow 25 grower licenses and 50 dispensary licenses. Each company that wins a dispensary license could open up to three locations, meaning there would be up to 150 dispensaries.

An individual applicantcould now have more than five dispensary licenses and no more than one grower license.

Up to five of the 25 grower licenses will also allowed vertical integration with dispensaries, while the overall number of grower and dispensary licenses could expand in the future.

Getting involved in the MMJ business will take some big money.

Growers would have to fork over $10,000 just to apply for a license, while the actual permit would run $200,000. Growers would then have to pay $10,000 annually to renew the license.

Applicants also would need to prove that they have $2 million in capital, including $500,000 on deposit in a financial institution.

Dispensary application fees would be set at $5,000, while dispensary licenses would cost $30,000 and be good for one year. Renewal fees would cost $5,000, and applicants would need to show that they have $150,000 of capital on deposit in a bank.

To win a license in Pennsylvania, applicants will need teams with players who know or can get to know the state’s various regions, observers said.

“Pennsylvania is a very provincial place and that’s going to require having a lot of political support on the ground from different municipalities, representatives, and regulators,” Bronstein said. “You’re going to have to know your way around the state, but that really shouldn’t scare anybody. There will be plenty of people from outside who will be able to come in and get licenses.”

Room for Smaller Players

Many entrepreneurs would be shut out of the industry, as the application and licensing fees are somewhat steep.

But that doesn’t mean you’d have to be wealth to win a license.

“I believe there are openings for people of many different capitalizations,” Auerbach said. “The big players will always be at a competitive advantage, but it seems like there is going to be a lot of openings for knowledgeable but undercapitalized people.”

Steve Schain, a cannabis attorney in Philadelphia, agreed.

“There is a small window for more regional or medium-sized operations,” he said.

And because the state would offer a decent number of licenses, Pennsylvania should expect a lot of suitors.

“You’re going to get a lot of applications. It’s going to look more like Maryland,” Bronstein said, referring to the deluge of applications that Pennsylvania’s neighbor received last year, forcing the state to delay when it will announce its license winners.

Laying Down Plans

In anticipation of the bill’s passage, some cannabis entrepreneurs are now laying the groundwork for their Keystone State operations.

For example, the California-based cannabis consultancy MedMen announced last month that it is partnering with The Winter Group, a political strategy firm based in the Pennsylvania state capital of Harrisburg.

And Brian Fox, a cannabis entrepreneur with a dispensary in Illinois and ambitions to expand into new markets, has already assembled a team that he hopes will win his company one of the state’s combination cultivation and dispensary licenses.

While the heavy work of establishing a regulatory system is yet to begin, many industry observers believe Pennsylvania has the potential to become a thriving medical marijuana market with lots of opportunities for cannabis entrepreneurs.

While there could be a potentially large patient base and sizable business opportunities, a more problematic question is whether there will be enough doctors to write them recommendations.

Under the Pennsylvania bill, doctors who wish to recommend medical marijuana will have to take an online certification course and opt-in to the program. The same rules exist in New York, and are frequently blamed for the slow start to that state’s program, which has been suffering from a lack of physicians and a lack of patients.

“I’m a little bit concerned that Pennsylvania may fall into the same trap as that,” said Fox, who also applied for dispensary and cultivation licenses in Maryland. “When you limit the doctors, that directly affects the patient count, but that’s not going to stop me from pursuing a license in that state.”

Auerbach, however, believed the opt-in provision for physicians wouldn’t hamper the program.

“There are a lot of doctors who are not only tolerant of this, but are actually looking forward to being able to recommend medical marijuana to their patients,” he said.

Another concern is that the proposed bill doesn’t allow for flower or edibles, which could undercut the market, observers said.

But because the program allows several other forms of consumption – pills, oils, topicals, tinctures, liquids, and dried leaf and plants – patients will have enough options to want to sign-up, Fox said.

“You’re taking away the ability of patients to choose how they want to take their medicine,”

Fox complained. While Fox would prefer flower and edibles to be included, he added that he thinks “the program will be fine without that.”

Furthermore, flower and edibles will most likely be permitted in the future, observers predicted.

“Once programs become permitted, they don’t get more restrictive, they get more liberal to make a more workable marketplace,” Bronstein said. “That’s what we’ve seen in all the other states that have started off restrictive.”

As I currently understand the bill there are many elements that could possibly serve to dampen the market potentials as indicated in the article including 1) no flower or edible sales currently included – oil related products only with a possible THC cap, 2) the physician driven qualification element is somewhat ill-defined at this time (could be similar to Illinois impacting potential participants; in November there were only 3,300 patients registered almost one year after the process was opened; additionally, look at New York State as another example of a very slow roll out), 3) requirement for a physician to be on duty at all times in all dispensaries during hours of operations that could add close to $50M per year in non-deductible expenses to the price tag of the products sold (150+15+30 dispensaries potential as currently anticipated open 40 hours per week each with a FT physician present at $120 per hour gross assuming you can find that many physicians willing to work at that rate and for this business in which they cannot have a financial interest), 4) state control of pricing, 5) restricted sales within a to be defined districting scheme which could mean best products only get to certain district based dispensaries, 6) the research license designation which would bring the number of cultivation/manufacturing entities up to 31 and add another 30 potential dispensaries to the total, to name a few. The Medicine Man Technologies Team is currently working with several clients in the State to assist in providing an increased awareness of what these (as well as others) elements could mean to an aspiring businesses plan of operations and deployment. It is possible that the final bill passed will create a platform that may be substantially less robust in nature compared to what the article’s upbeat tone is speaking to … for the moment we are excited but cautious as to what is in store for Pennsylvania potential patients and businesspersons and would advise caution.

One other note of interest in that the bill allows up to 18 months for promulgation and preparation of the application process which, when added to the application process and eventual deployment could mean two plus years or more before any product could be made available to patients … there was a suggestion that interim rules could be made available in 6 months but I would warn businesses interested in the space to be very cautious if they elect to invest in any scheme that is founded upon interim rules and or processes.